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Remember those early PR's on Collins where they were venting thousands of dollars a day (in mgt's estimation) of NG.
There's your PR about Hemi being a producer of NG, this does not necessarily mean that they are selling it. No ready market for this asset, at least not now or in the foreseeable future unfortunately.
We are way overdue for some news on what exactly is happening out there. A PR should be coming next week I hope. Wouldn't surprise me a bit if the lower section has to be plugged off and a new sidetrack started again.
There could also be rig problems such as a BOP (blow out preventor) repair job upcoming. This kind of delay and high pressures puts heavy wear on the BOP and makes repairs necessary, imo..... We had BOP downtime on the first well (Victory) I believe also...
Welcome Sputnik - as someone who worked in the "Texas oilpatch" for 10 years during that 30 year period of yours - I hope you don't dig up any whoppers about me... LOL
What part of TX are you in? I was in North Central but moved out of state in 1990.
REAZO - maybe the production numbers will be this high, no way to tell at this juncture. Just remember though, as USC Cowboy reminded us several weeks ago. There is a finite amount of oil in this payzone and it is a depleting asset. The faster you remove it, the more likely to risk formation damage and the sooner you are at the end of the fields natural life.
That's whats so tough for these small o/g operators, the leases they buy tend to be partly depleted already (mature fields already on secondary recovery) or deplete fairly rapidly and then you have to acquire more leases.
It's going to be real interesting to see how this lateral does in this mature field. I just hope HEMI shares the details of the production as time goes on.
I'm not Kels but have gotten pretty good at using the KCC website.
See if this link works for you:
http://www2.kcc.state.ks.us/search?q=hemi&submit.x=11&submit.y=5&site=cons_dockets&client=kcc_frontend&proxystylesheet=kcc_frontend&filter=p&oe=utf8&ie=utf8&output=xml_no_dtd
That high pressure, new production area, is mainly gas. Since there is no market for that gas at the moment, there would be no benefit to drilling a horizontal on the Collins lease.
Now if / when a gas line gets connected, a horizontal there could really have some impressive production. Since the Collins is producing gas / oil / condensate, this could really be a nice revenue maker.
I was hoping that the cost of the well would be a little less now since oil is down so much and the # of NOI's in the area is also way down. Driller prices behave on supply / demand and drilling in the middle of the KS winter should be a slack time.
You're right though, it's just a guess on my part for my figures.
I did like reading that part in Kels post about the location alluding to the fact that the Horizontal section may be drilling under areas never drained before due to surface features like a creek bottom or flood prone areas. There may be a substantial portion of this 2400' tapping original oil in place. This should produce higher rates, lower water cut and a slower decline curve.
After looking at the lease maps and geology of the area, the only way the upcoming horizontal well will not be successful is some kind of mechanical failure that causes total loss of the well bore. There is simply too much data on this formation and all the prior well control points for Craig to not have chosen a great location for this drill.
This is "in-fill" drilling, meaning you are drilling a well between known productive wells. Since the Squirrel is a blanket formation, they just need to keep the well bore centered in that zone and they will get an oil producing well - no doubt about it.
Now what is the production going to be??? That's the 100K dollar question. Here's my wag. Let's assume a new vertical well on this lease makes stabilized production of 3 bbls a day on average. I will now guess that this 2000'+ lateral section will be able to drain the equivalent of 20 vertical wells (100 feet diameter on each). 20 x 3 bbls = 60 bbls a day potential. I will derate this value at 75% to be conservative so will hope to see about 45 bbls a day production (stabilized). This should run out to over 1200 bbls a month, which I would believe to be double the current monthly HEMI output of around 600 bbls. Even at 40 buck a bbl crude, the economics look good for ROI on this well if these numbers turn out to be anywhere close.
It would be nice to know the cost to HEMI for the horizontal drill. I believe a turn key vertical well to this depth would be something in the $40-50K range. Assuming the horizontal is 2.5 times as expensive, we're looking at $90-125K per well which allows for the multiple horizontals to be drilled with that Wyo. lease sales paycheck. I would also like to know HEMI's pre-drill estimate on monthly production for this well.
Good luck Craig and Keith, hope your hard work and bold plan pays off and it somehow translates into SP appreciation for all us shareholders.
From the legal posting on Dec. 4th:
"Any persons who object to such Application shall be required to file their objections or protests with the Kansas Corporation Commission within fifteen (15) days from the date of this publication."
I hope that no one intervened maliciously to harm the drilling timeline just so they could spout the "I told you so" mantra...
Gold_Man - thanks for the PM and clarifying that for me. Best wishes to you on your BOLD venture, I hope it is wildly successful for you!!!
For whoever posted a question about how long it would take to drill this horizontal well, my best guess would be about 5-8 days from spud to TD. Remember the last 2400 feet should be in the relatively easy drilling high porosity Squirrel Sandstone payzone. Nothing like a lot of greasy oil to help lubricate the drill bit!
Not to nit-pick but in the vein of complete accuracy, the HEMI PR of 10/16 quotes KAA as stating "....and we anticipate spudding the well in the next 30 to 90 days."
http://ih.advfn.com/p.php?pid=nmona&cb=1229540350&article=28532225&symbol=NO^HMGP
Not the 60 to 90 days referenced in your post. You must have thought the 30 day reference doesn't look good.
Given the more complex reg's you outline for the Horizontal drill, why would Keith even allude to a 30 day spud date? Seems kind of unrealistic given the KGS reg's in place. The term spud refers to the initial entry of the bit into the earth so all permits and such would need to be in place at that point.
I am glad that it looks promising to start the well at around the 90 day mark if a late Jan. spud occurs. I bet that Craig has been frantically lining up all the technical aspects of the venture. Wishing them luck and hope the well starts on-time and delivers nice results.
looks like you got your fill at 0.01. Merry Christmas.
What's your thought on oil prices into next year? I've understood OPEC wanted to see at least $75, and that they don't like these wild swings.
Even though it will hurt my o/g stocks, I am hoping that oil and gas stay low through most of 2009. That is the only way to keep this financial asset bubble burst from turning into a global depression. If OPEC is able to move oil prices back up too quickly by limiting supply, the world economies will just get that much worse.
A co-worker told me at lunch today there was a gas price war in her town this weekend when a new station opened. She filled up her Honda Civic for $1.149 a gallon, a whole 14 bucks for her to fill up. She paid over 40 dollars for that same fill up a few months ago. Multiply that times all the people around the world and you will see that it adds disposable income better than any gov't stimulus plan (it's immediate and widespread too).
Thank you for another of your REAZOnable answers. I agree that it's possible to remain cash flow positive at these levels but not as easy as it were before the major decline in the oil price. Hemi seems to run a lean business and being debt free helps immensely.
I also partially agree with the strategy of "tanking oil" at these levels, selling just enough to pay the bills or empty full tanks. It sure as he## makes more sense to tank oil when prices are at $45 a bbl now rather than tanking oil when prices were at $130+ last summer. Of course, no one knows for sure which way prices are headed, lower or higher. Selling a constant amount each month kind of evens out the price movements a little. Kind of like dollar cost averaging when buying stock.
Kels - I have a question regarding your Hemi Summary. You state that:
"> Hemi is maintaining a Positive Monthly Cash Flow based on current revenue being generated by the oil and to be Tarrant County lease agreements".
Do you know this to be a fact or just reporting previous Hemi official PR's?
The last time Hemi made this supportive statement was 8/22 when they said "Hemi has been cash flow positive and continues to be cash flow positive and is meeting all normal operating expenses from oil production."
Crude oil prices were in the $90-100 bbl range at the end of August when Hemi last made this statement. Now crude is in the $40-50 range. I doubt they have been able to double output to stay revenue neutral.
BigMur - good info in your post, hope you are correct as it relates to Hemi. That being said, it is just speculation on your / our part to try and figure out the original cost and/or the impact on the balance sheet from this asset sale.
Even though pink's do not often disclose information regarding their operations, it could be a novel idea for them to be trailblazers and show a little bit of transparency. The current modus-operandi sure hasn't helped the SP any and it's not just the fall in oil prices either. The trend of decline started even while oil was moving upwards to $147 bbl earlier this year.
Would it have been too much to ask for KAA's PR to simply state that the WYO sale was from an asset acquired in 200x before they became a public company and the sale resulted in Hemi booking a profit of $xxx.xx on the transaction.
Biker - that was my thought also from the first mention of the Wyo. lease "net proceeds" sale. What was the acquisition cost, how long did they hold it, what was the source of the funds for the initial purchase, etc...
I decided it wasn't worth bringing up on this board, anything that questions the financial's or actual business workings of Hemi goes nowhere.
Selling an asset of a company does nothing to help the balance sheet if the acquisition cost is equal or greater than the sales price. They no longer have the asset but do have $475K. Now if only we knew what that lease was carried on their books as.
USC - here are some links from the KGS showing the Bennett C lease production statistics. The iHub board has debated the completeness of these figures to the point that most here agree these are not actual production numbers but reported oil sales figures. Regardless of their source, they do provide good history and more important - trend. Yearly production (sales) for the last 3 years is under 200 bbls. annually.
I would say that since the data goes back to show production from the early 70's, that this is indeed a mature field. Primary production probably occurred for a few years and then a standard water flood would be in order for secondary production. If the primary production removed 15% of the "original oil in place" and the secondary removed a further 15% OOIP, how much movable oil would be left to extract using the horizontal well drainage model? Any guesses based on your experience? The Squirrel probably averages around 16 feet in thickness and at a depth around 900 feet.
http://hercules.kgs.ku.edu/KS_Charts/leases.cfm?f_kid=1001106994&o_id=11360035&g_id=11360036
http://abyss.kgs.ku.edu/pls/abyss/oil.ogl5.MainLease?f_lc=1001106994
Reazo (and Big Mur): I provided my two cents on the matter, Kels has his angle and I have mine regarding this relationship terminology. You are correct, it is a matter of semantics. Kels posts from his angle of highly optimistic slant with regard to Hemi, I try to be more balanced - "just the facts as I see them". Board members can read and come to their own conclusions, that's why we're all here.
It's all good dialog. BTW - I see you're using the term "agreement" and not "partnership" - ;^)
I sure hope you are wrong about this. Union's are what's wrong with keeping American businesses competitive in the world economy. 100 years ago, unions were needed mainly to protect workers safety in industries where little attention was paid to the working conditions. Now days, it seems unions are solely interested in unreasonable demands for wage / benefits concessions and job security for their own without regard to changing economic conditions.
Any kind of tax payer bailout of the Auto sector without demanding cancellation and rework of the union labor agreements will simply delay the eventual business failure of the Detroit companies.
10 times more production for Hemi on the Bennett lease upcoming drill would suit me just fine.
Economics sound good if horizontal costs 3 times the going vertical well rate but you get 10 times the production.
Thanks mike_t for that short recap. Was hoping to catch that episode tonight but didn't get to...
Kels - the two key words in your own definition are "close cooperation". I maintain there is no such working arrangement here between Hemi and XTO or CHK as far as the Barnett leases PR'd by Hemi. Even Hemi was careful to not use the word partnership or imply anything more than a standard royalty position in the pooled interest.
XTO or CHK wanted to drill their well on land that Hemi had obtained the mineral rights to on a small percentage of the spacing required by the local ordinances. Their's plus all the residents in that section of land entered into a standard contract where the royalty holders will get a share of future gas sales from the well.
I agree it is a "business relationship" but think partnership implies too strong a connection between Hemi and these two majors. Next time you talk to Keith, ask him if he considers the Barnett shale royalty deal to be a partnership with XTO / CHK or simply a business relationship.
Kels wrote: and the now confirmed partnerships with XTO and Chesapeake.
To keep things fair and balanced on the board, I think your continued usage of the statement that Hemi is in a partnership agreement with CHK or XTO is simply misleading and not true.
Below is the actual statement from Hemi's recent PR. Being a pooled royalty interest holder in a master lease makes Hemi no different than all the Smiths, Browns, Jones, et al that have mineral rights in the drilling location and are part of this same pool:
Rather than direct sale of these holdings, Hemi chose to allow these lease holding to become part of a larger "pooled" master lease(s), in a passive non operated royalty position in these Barnett Shale projects. The Company expects to see additional activity in it’s remaining Barnett Shale holdings in the near term. These leases will in turn become passive non operated royalty positions.
Now granted - Hemi may try and leverage this association with CHK or XTO during the legal document process by seeing if they were interested in any assets that Hemi may have on the selling block. This again is hardly a "partnership".
Nice catch Kels - since you seem to be the only one on the board with good knowledge of the lease locations, which lease would this be on? The legal description shows Section 28 Township 25 South, Range 17 E, Woodson County, Kansas.
This looks to me like it could be the Bennett C or the Orth-Silvey lease. Maybe Gold_Man can clue me in on the lease name...
2400 feet in the lateral section, almost half a mile.
Steer it straight Mr. Treiber!!!
Calm it is, and rightly so. SEK is settling into their typical winter weather pattern and oil at 48 bucks a bbl. isn't lighting anyone's exploration budget. From the KGS website for NOI's (Notice of Intent) to drill, I selected Woodson County where most all of Hemi's operations are. Here is the result for "all operators":
http://kcc.state.ks.us/conservation/intents/index.cgi?Filename=&Permit_Date=&Section=&Township=&Range=&East_West=&District_Number=&County=WOODSON&License=&Date_Range=180&Mod=Mon%2C+16+Apr+2007+14%3A11%3A07+GMT
July 2008 - 7 NOI's
August 2008 - 12 NOI's
September 2008 - 15 NOI's
October 2008 - 16 NOI's
November 2008 - 5 NOI's
December 2008 - 1 NOI's
The October 6th PR mentioning the horizontal drill program stated "We will be employing the first available Texas or Oklahoma based drilling company to conduct this project and we anticipate spudding the well in the next 30 to 90 days.". We are almost at day 60, anyone here think the spud will happen yet in 2008 ??? We have brutally cold and icy conditions in early 2009 that quickly turns into the rain and muddy season in the spring. Maybe the spud will happen in early summer, just a guess though.
If I sounded angry, I wasn't. Just posting basic financial terms like "risk" as it pertains to any investment. Anyways, it is gone now so only we'll know of the exchange.
Have a good holiday yourself, you and your community has been through the grinder this year but like all obstacles in life - there is plenty more to be thankful for.
Mur - that makes a lot of sense, you are probably right. I don't know of any housing configuration that would be on .03 acre spacings (33 units per acre) except some kind of high rise or multi-family dwelling. In those cases, the mineral rights would surely stay with the developer or original land owner. I doubt the tenants would be granted mineral rights when buying that kind of property.
Morning Tex - please advise where the math error is on my calculation. I've made errors before as we all have but 0.5 + 0.2 + (4*.03) = 0.82.
Where is the error?
Kels - nice link, I enjoyed reading the lease contracts for these 6 parcels. Terms are for a standard royalty of 25% of production, paid by Hemi to the mineral rights holder. The 6 leases entail land in the following sizes: 1 @ 0.5 acres, 1 @ 0.2 acres, 4 @ 0.03 MOL (more or less).
Total acreage is therefore less than 1 acre for these 6 in aggregate. I wonder how Hemi was able to leverage these in the pooled interest division order with XTO / CHK? If Hemi is paying royalties in the amount of 25% to the original mineral rights holder, what is Hemi getting from XTO / CHK? I mean this in monetary terms, you know cashola, I don't care about the simple exposure of Hemi's assets being in front of XTO and CHK.
I see a note at the top of the documents that show "... with 160 acres pooling provisions". I wonder if this means that the pooled interest consists of 160 acres for drilling purposes?
Does anyone know how many more parcels in the Barnett Hemi holds? I was surely thinking it was more than six and more than 0.8 acres in total.
I would love to sell my entire "non-IRA" holdings of HEMI for tax loss purposes and buy back in after the 31 day wash rule passes. Problem is, I am scared that as soon as I liquidate, a very nice run occurs in the SP and I miss out... Anyone else out there thinking along those same lines?
Really good questions, the lack of details in the PR today does nothing to assign any kind of value to the venture. We really need to know how many acres does Hemi hold in this pooled lease, how big is the spacing requirement for the operator to drill these wells? If Hemi holds 4 acres out of a 160 acre spacing, simple ratio's would say that Hemi gets 2.5% of the royalty split off the division order. If the mineral lease holder gets a Barnett Shale lease normal 25% take (XTO or CHK gets 75%), then Hemi would get 2.5% of 25% or 0.625% of each revenue dollar. There is no expense to Hemi since this is a royalty and not an operating partner arrangement.
If the well makes 5 million cubic feet a day of production and assuming $6.50 per 1000 cubic feet sales price, that grosses out to $975,000 a month. Hemi's take would be $6100 a month.
This scenario assumes that when Hemi acquired the lease from the original owner, they paid them in cash and the original owner does not retain any royalty portion of production. If they do, then the 0.625% amount would be further reduced by that agreement.
At least today's PR had the long awaited, and often rumored, mingling of Hemi with XTO and CHK. I wonder if the Billy Smith's and Ronnie Brown's of the area issued a PR today that XTO is drilling under their land too as part of this pooled lease? Overall its a positive thing but without any way to place a value on what Hemi gets out of the deal. I can wish for more meat with my gravy can't I?
Here's a repost of my "wish list" from Oct. 2nd on any upcoming PR's.
Anyone want to add to this? After all, it's coming up on Christmas time and everyone needs to do a wish list right?
I would hope for news on:
1) Gas marketing plans for SEK
2) ND Bakken lease deal update
3) Production numbers for the new Collins and Weseloh wells / or the other mature leases since February
4) New leases picked up - say Eastern Oklahoma to fill in the land gap between SEK and TX.
5) New O/S numbers and float totals.
6) Flood Insurance claim settlement update
7) Further news about the stock price manipulation and/or investor fraud for the SP tampering by the field sabotage attempt
8) New drilling plans to exploit the Collins lease
9) Financial numbers of any kind
10) Reserves report update
11) ???
Item 8 was addressed recently with the intent to pursue a horizontal drill on one of the SEK leases. Not sure if it will be Collins or the older mature leases though.
Not practical on this well because of the relatively shallow nature of the producing zone (~900 foot) and the fact that the current well is productive "as-is"... At least I hope it's still producing some oil along with all that vented gas.
You could re-enter an abandoned deeper well, say greater than 5000' to avoid redrilling that portion of the well. You could then deepen it to a new zone or go horizontal once you get below the cemented casing.
One benefit of the free fall in oil prices is that this new horizontal drill should be substantially less to drill and complete than it would have cost last summer. I hope CT and KA can be shrewd with the $'s for this new well. Producers with cash in hand and willing to spend can call the shots now, not the drillers / supply companies.
I follow this stock only as a curiosity. It smells of the typical small cap, pinkie type stock that has just enough oil assets to promote itself as a real oil/gas company but really makes their money off of hype and pump. IMHO of course.
If you need a tax loss, then sell it before the year end.
My sentiment exactly.... and what's ironic is the present "cure" being implemented is to issue more credit and debt !!!
That's why I think this financial crisis will be with us for a few years, just hope it doesn't get too ugly.
No speculation on my part, that was your interpretation Kels... In fact, you came to the same conclusion as me, that the missing June numbers were due to the "tanking strategy" of filling the storage tanks up and selling them at a better price. Just posting to see if our board members would come to the same conclusion.
Now if only the "Sage of the Stockyards" was able to sell every drop in mid-July as oil peaked, that would truly be worthy!!!
Link to KGS website showing the NOI (notice of intent to drill) for the 4 wells of the preceeding post:
http://kcc.state.ks.us/conservation/intents/index.cgi?Filename=&Permit_Date=&Section=&Township=&Range=&East_West=&District_Number=&County=&License=34157&Date_Range=365&Mod=Mon%2C+16+Apr+2007+14%3A11%3A07+GMT
Word of caution though on this stock. Even though these 4 wells appear to be legit, this company has lot's of baggage and uncertainty. See excerpt below from Sept. 2007 Kiplinger article (entire article link follows below):
More hype. And speaking of egregious, take Fox Petroleum of London. The company wants to be a wildcat driller but needs to raise money to explore the properties on which it holds leases. Its stock (FXPE.OB), which is quoted on the OTC BB, traded for $2.50 on September 11.
Fox's stock price had doubled between early July and mid August but had begun to slip. The company bought ads in the September 17 issue of Fortune and the August 27 issue of Barron's, among other publications. The ads describe the potential oil production from leases Fox owns and drop the names of major oil producers, such as BP, Chevron and Exxon Mobil.
But you wouldn't learn from the advertisements that the company lacks any active production sites, has few employees and needs to raise millions before it can start drilling, according to SEC filings. Fox spent $300,000 on advertising in various publications, says Alexander Craven, the company's vice president of finance, treasurer, secretary and one of three full-time employees. "We felt the expenditure was important to promote awareness both for the company and for our investors," Craven says.
One has to wonder why Fox spent thousands on magazine and newspaper advertising for investors to check out a stock when it needs millions for drilling operations. Fox has only $1.7 million of cash on hand, according to its most recent quarterly report filed with the SEC.
In addition to the promotion in the Fox-paid ads, an online publisher, Contrarian Press, began pushing Fox shares on June 11. Contrarian is run by Scott Fraser, who has had a run-in with regulators. The SEC issued a cease-and-desist order in September 2003 claiming that Fraser made false and misleading statements relating to the past performance of stock recommendations in his Natural Contrarian newsletter. But that hasn't stopped Fraser from saying on his network of Web sites that he's "Profit-Proven Master of Contrarian Strategies."
He boasted of his skills in a full-page ad in the September 2007 issue of Kiplinger's Personal Finance -- mea culpa -- as well as in Forbes and Barron's. Editors at Kiplinger's refused to accept a full-page ad in the October issue because it hyped companies with no ongoing businesses or revenues. Fraser wouldn't return calls and e-mails seeking comment, so we don't know his motives for recommending Fox and similar stocks. Craven says Fox executives are not involved with any stock promoters.
http://www.kiplinger.com/columns/picks/archive/2007/pick0911.htm
Some July sales production figures have been posted on the KGS site today. These have been discussed at length and do not actually represent the lease production (gross oil production flowing into our tanks) but rather the reported crude oil sales by the gatherer and reported to the KGS. At least that is the way others here on the board have described the figures. If you want to peek, here is an easy link...
http://abyss.kgs.ku.edu/pls/abyss/oil.ogl5.OpLeases?f_id=1033972094
Notably missing are any figures for June... Hmmmmmm?!?!?
Gee you sound just like Michelle Obama's famous quote... Glad you're such a happy camper tonight.